5 steps to prepare yourself financially against sudden job loss

13 Jan 2016

6 min read

Your career is in full swing; you’re half-way to saving the deposit to upgrade to an inner-city townhouse; and your trip to South America is so close you can touch it. Then your boss starts acting strangely...

One morning they approach, ashen-faced, tap you on the shoulder and ask for a 'quick chat’ in their office. A box of tissues has been placed on the desk.

"This is as hard for me as it is for you," they start.

And then comes the shocking news: the company has decided to streamline, and you're role has been made redundant.

Facing a sudden job loss, can be traumatic – whether you’re young and just starting off in your career, or you’re a bit older with financial responsibilities like kids and a mortgage, or even in the latter stages of your career - it could trigger a major financial setback.

"You need to plan for the possibility of your job being made redundant," says Diana Saad, senior financial planner at Westpac Premium. Diana says that unlike the GFC, she hasn't seen large rounds of redundancies or job shedding with her clients and in her social circles.

However the Australian economy is in the challenging position of transitioning away from the mining boom; and many industries could potentially face digital disruption.

Unemployment is expected to rise in 2015-16 to 6.5 per cent, then fall the following year, according to the Australian Government’s Budget 2015 Economic Outlook. While that isn't anywhere near the 10 per cent reached in the early 1990s recession, it's stubbornly high and could create uncertainty for workers.

So Diana says it's sensible to be prepared for a sudden job loss. The good news is that by taking a few simple steps to plan and having a positive attitude, you could become better prepared for that unlikely event and even position yourself to seize new opportunities.

1. Set up an emergency fund/put away for a rainy day

Planning for a job redundancy begins with building an emergency fund: a pot of money you've set aside that will tide you over if you lose your job. "Have money set aside for a rainy day," Diana says. "That could mean having a cash account or paying extra into a home loan."

Diana says the key is 'liquidity': being able to access the money readily if you're made redundant. You can obviously easily access a cash account, but Diana says that some managed funds and shares could potentially be sold to access cash.

Diana recommends a safety fund that could pay for at least six months of living expenses, including everything from home loan repayments and bills to leisure.

2. Create a regular savings plan to feed that rainy day fund

With mortgage payments, car loans, and the cost of groceries rising, you might think that building a safety fund is impossible.

A safety fund requires a regular savings plan to help it grow. An ideal way to do that is to have money automatically taken out of your pay and put into the fund. To further help your safety funds grow, you might like to consider holding them in a high interest savings account, which will earn you a higher interest rate than an everyday bank account, but still give you similar access to your funds. A number of websites compare the different interest rates that are on offer, simply do a google search for “high interest savings account” to have a look. Of course, before opening a high interest savings account, you should consider any associated fees and product features.

What if you're tempted to splurge and spend your savings? Diana says if dipping into your safety fund is really an issue, hand it to someone else. "If it's that bad, give the money to a family member you trust," she says. "If you ask for the money for a stupid reason, tell them not to give it to you."

3. The payout: know your rights

Diana says it's also important to understand how your redundancy payment will be calculated. "Make sure it's done correctly," she says. "A lot of people’s jobs get made redundant and the figures are not necessarily the right ones. There are rules around how much your employer has to pay you."

Those rules are outlined at the Fair Work Ombudsman, which enforces Australia’s workplace laws.

Again, preparation is the key. Take the time now to understand what you're entitled to. In the emotion of your job being made redundant you might forget to do it. Diana also suggests getting advice from a financial planner to clarify your entitlements.

4. Be mentally prepared

Losing your job can be a shock, but if you prepare yourself psychologically for any negative event, it can lose its sting.

"A lot of people feel really down about it," Diana says. "But don't take it personally. It's mostly likely they've simply made a business decision."

"You've got to try as best as you can to get over those feelings and make the most of this situation going forward."

Diana says a key is to focus on the positives, including the benefits of any redundancy payouts you receive. “There may be opportunities to pay down credit card debt and home loans. Or you could use the money for a deposit for an investment property, or start a managed fund or share portfolio. The money could also be used to renovate your home to potentially boost its capital value but also enhance your lifestyle.”

A job loss is also an opportunity to reassess things and focus on what you really want in a new job. Spend some time thinking about your dream job. That might mean taking time out to do that further study you haven’t had time to do yet.

Diana says being prepared to move quickly if your job is made redundant is important. That means seeing recruiters immediately as well as tapping into your network and making sure your resume is up-to-date. "The quicker you move the better off you could be financially."

5. Know that help is around

Some people might not recover quickly after a sudden job loss. Diana says it hits people particularly hard who strongly identify with their job.

"It's their purpose," she says. "If you take that job away from them they feel very lost."

She says some people may need to see a professional counsellor to seek help with recovery. Being financially and emotionally prepared will boost your confidence when you go looking for that next role.

And now that you're prepared, when your boss announces your job has gone you can stand up, push the tissues aside and get ready to start off on a new and exciting path.

MoneySmart brand tracking program, Sweeney Research January 2014, (n=1,380). Note it is possible some classified as ‘non-savers’ may be making extra payments on their mortgage, other loans or into their superannuation.

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